Jefferies initiates mortgage finance sector, flags scale as key to recovery
Investing.com -- Jefferies on Friday initiated coverage of the U.S. mortgage finance sector, saying scale will be a key differentiator as mortgage activity moves toward normalization over the next several years.
The brokerage said the interest-rate environment has become less restrictive for mortgage originators, supporting a recovery in volumes.
Jefferies, citing Fannie Mae forecasts used in its models, said total mortgage originations are expected to rise to $2.3T in 2026 and $2.5T in 2027, in line with long-run averages.
The forecasts also assume a 40-basis-point decline in the 30-year fixed mortgage rate to 5.9% by the end of 2026, from about 6.3% at the time of the report.
Within the sector, Jefferies initiated coverage on Rocket Companies, PennyMac Financial Services and Walker & Dunlop with “buy” ratings, while starting UWM Holdings at “hold.”
The brokerage said larger, diversified platforms with meaningful servicing operations are positioned to generate more stable earnings as volumes recover, compared with more narrowly focused originators.
Jefferies named Rocket Companies as its highest-conviction call in the sector, assigning a “buy” rating and a $25 price target.
The analysts said Rocket’s scale as the largest originator and servicer, combined with acquisitions completed in 2025, supports earnings recovery as volumes normalize.
Jefferies projected Rocket earnings per share of $1.23 in 2027, compared with $0.90 in 2026, and said its estimate is about 12% above the consensus median.
PennyMac Financial Services was also initiated at “buy” with a $160 price target. Jefferies said PennyMac’s diversified business model, anchored by a large servicing portfolio and correspondent platform, allows it to generate positive returns even in higher-rate environments. The brokerage forecast 2027 earnings per share of $17.70 and valued the stock at about 9x those earnings.
Walker & Dunlop received a “buy” rating with a $75 price target. Jefferies said concerns tied to loan repurchases related to pandemic-era originations have weighed on the shares but described the issue as limited to specific vintages.
The analysts projected 2027 earnings per share of $5.55 and applied a 14x multiple, citing the company’s fee-based servicing and advisory revenue as sources of earnings resilience.
Jefferies initiated UWM Holdings at “hold” with a $5 price target. The brokerage said UWM has strong operating leverage to a recovery in mortgage volumes but described the shares as fairly valued relative to peers, given the company’s concentrated exposure to wholesale origination and governance structure.
Jefferies forecast 2027 earnings per share of $0.59, valuing the stock at about 8x those earnings.
Across the sector, Jefferies said its valuations are based on applying mid-cycle multiples to normalized 2027 earnings, reflecting expectations for a recovery in mortgage activity rather than a return to peak-cycle conditions.
Rather than assuming unusually strong pricing power, the broker emphasizes that its earnings recovery is driven by volume normalization and operating leverage.
